Friday, August 19, 2011

Something smells bad: 8th Circuit reverses literal falsity holding

Another day, another decision making it harder to recover for false advertising.

Game animals use their senses of smell to avoid hunters, who therefore like clothes with activated carbon to adsorb and retain human scent (adsorption means that the scent particles physically adhere to the surface of the material). ALS advertised its ScentLok clothing as containing “odor eliminating technology.” Plaintiffs brought a purported class action against ALS and three licensees claiming that ALS falsely advertised that ScentLok technology would eliminate 100% of human odors and that it could be reactivated or regenerated in a household dryer after the clothing has become saturated with odors, violating Minnesota consumer protection laws.

The district court denied plaintiffs’ motion for class certification based on variance in reliance and damages issues. Plaintiffs moved for partial summary judgment on literal falsity, and the district court held that ads claiming that the clothing is “odor eliminating” were literally false, entitling plaintiffs to a permanent injunction. The ads claiming the potential for reactivation were not literally false, but claims that the clothing would be “like new” or “pristine” were. However, the Minnesota Deceptive Trade Practices Act allows only prospective injunctive relief, and the court granted defendants summary judgment because these plaintiffs are at no risk of future harm.

Defendants appealed; the court of appeals vacated the injunction.

First, the court held, the plaintiffs led the district court into error by arguing that the state statutes at issue were coextensive with the Lanham Act and that when an ad is literally false injunctive relief should follow. (I guess that, unlike ordinary consumers who are very hard to fool, district courts are easily misled.)

This was a misstatement of federal law, though it had been repeated in numerous district court opinions. Even in literal falsity cases, the proper rule is that “when a competitor's advertisement, particularly a comparative ad, is proved to be literally false, the court may presume that consumers were misled and grant an irreparably injured competitor injunctive relief without requiring consumer surveys or other evidence of the ad's impact on the buying public.” However, the plaintiff must still show irreparable injury to get an injunction. The district court here erred in granting a permanent injunction without proof of irreparable injury.

There was a second error: equating the standards for relief under the Lanham Act and the state consumer protection laws. (Somehow this error never matters when it’s made by defendants. As I have noted before, this is a common statement. Watch as the court tries to prevent its holding, which in the abstract is entirely correct, from making any difference to Lanham Act plaintiffs.) Lanham Act cases involve claims by competitors or those with commercial interests, and so in prior cases the court has held that pendent state law claims are “coextensive” with the federal claims. Here, however, plaintiffs are consumers making only state law claims and the laws should not be automatically equated. “When the plaintiffs are consumers who have proved no future harm, as in this case, it is an error of law to assume that a false statement materially deceived and injured the plaintiffs.”

Honestly, I’m not even surprised at the mismatch between logic and result. Actually figuring out what the state law provided would have required looking at the elements—and state consumer protection laws generally don’t require reliance or actual deception, see the Minnesota CFA. They often do require a consumer interest or impact, which sometimes affects competitor-plaintiffs’ standing, and on some occasions (Massachusetts comes to mind, where a competitor can show unfairness only by meeting the standards for an antitrust violation, whereas acts unfair to consumers are defined more broadly) the standard for liability will differ as between competitors and consumers. However, the particular doctrine here—that literal falsity leads to an inference that deception occurred—should either be valid for all state law plaintiffs or for none. We don’t even have reason to think that state law distinguishes between explicitly and implicitly false statements the way the Lanham Act does, especially given the explicit absence of any requirement of “actual confusion or misunderstanding” (compare the Lanham Act doctrine in cases of implicit falsity). The idea that the causes of action are coextensive as applied to competitors makes no sense, and the court of appeals should have admitted that the previous decisions were the product of failure to address the elements of the state law claims.

Okay: here, plaintiffs sought a permanent injunction based on violations of two state statutes. In Minnesota, injunctive relief is appropriate if the prerequisites have been established and the injunction would fulfill the legislative purposes. “Once the statutory standards are established, Lanham Act decisions provide useful guidance in determining the proof required to establish consumer confusion under the MCFA and the MUTPA.”

The MCFA specifically authorizes injunctive relief for the use of “any fraud, ... misrepresentation, misleading statement or deceptive practice, with the intent that others rely thereon in connection with the sale of any merchandise, whether or not any person has in fact been misled, deceived, or damaged thereby,” but only for actions brought by the AG. Under a separate provision, any person injured by violation of the consumer protection laws may recover damages and “receive other equitable relief as determined by the court.” So plaintiffs have to have been injured by a violation, and equitable relief has to be consistent with remedies principles, “which universally require proof of irreparable injury.” (In a footnote, the court said it didn’t disagree with cases holding that literally false comparative advertising presumptively creates irreparable injury to the competitor.)

As for the MUTPA, it bars knowing misrepresentations of the true quality of merchandise, and does grant a private right of action to enjoin violations. “Any person damaged or who is threatened with loss, damage, or injury by reason of a violation … shall be entitled to sue for and have injunctive relief ... against any damage or threatened loss or injury by reason of a violation.... [I]t shall not be necessary to allege or prove that an adequate remedy at law does not exist.” Still, plaintifs have to prove that they were damaged or threatened with damage, and plaintiffs failed to prove the threat of future injury. “[W]e doubt that [this section] authorizes an injunction to ‘remedy’ only past violations.” Uh, okay. I’m sure that’s why the statute provides for injunctions against any “damage” or “threatened loss.” Since plaintiffs claimed they didn’t need to prove irreparable injury, the injunction was vacated.

But we’re not done! The majority then found that the district court erred in its fact-finding. The court found literal falsity, but claims must be considered in context. There was evidence that the clothing blocked a lot of odor compounds, though it didn’t eliminate odor; that consumers liked the products (which is of course relevant because consumers can easily detect whether prey animals can smell them); and that other advertisers used the word “eliminate.”

The court of appeals first disagreed with the district court’s use of “the most absolute of competing dictionary definitions” of “eliminate.” “The Lanham Act doctrine of literal falsity is reserved for an ad that is unambiguously false and misleading—‘the patently false statement that means what it says to any linguistically competent person.’ We doubt there are many hunters so scientifically unsophisticated as to believe that any product can ‘eliminate’ every molecule of human odor.”

Okay, look, I realize the court doesn’t want to let these plaintiffs win. But it would be nice to get the reasons conceptually right. “Linguistic competence” is not the same thing as “scientific competence.” “Eliminate” means get rid of. Not reduce. Every dictionary definition the court looked at, not just the “most absolute,” said this, because “eliminate” is an absolute. So, to any linguistically competent person, eliminate would mean get rid of, just like any linguistically competent person would understand the claim “this car gets 10,000 miles per gallon” to mean exactly that as a matter of denotation (compare the linguistic ambiguity in "this book should not lightly be set aside"). The court’s actual objection is that a reasonable hunter wouldn’t believe the claim that is clearly conveyed by explicit statement—that is, the court thinks this is puffery, as it quickly makes clear.

Because text must yield to context, it was error to enjoin all uses of “odor eliminating.” It might be that some of the ads so exaggerated the basic claim as to be literally false, rather than nonactionable puffery. The court mentioned as potentially false ad claims that the garments work on "100% of your scent 100% of the time," render the wearer "completely scent-free," or "create an impervious shield to odor." “But it is unclear the extent to which these ads were ever published, whether they have long since been discontinued, and whether consumers were deceived.”

Because plaintiffs represented that they moved for complete summary adjudication on their injunctive relief claims, the court of appeals directed the district court to enter an order dismissing their claims for equitable relief with prejudice. Their individual damages claims remained.

One judge concurred in the first part (the legal error), but dissented from the finding that the district court wrongly found literal falsity in “odor eliminating” and “reactivation.” (Hey, did the majority even find that “reactivation” was not literally false? I don’t see any discussion of the term. I guess implicitly we must conclude that the district court was also wrong about that, for a reason to be named later?)

The dissent agreed that context matters, but

the majority's opinion substitutes this court's judgment for the evidence in the record (i.e., the statements in the Plaintiffs' affidavits) that the Plaintiffs themselves were misled. It is true that only a very credulous consumer would believe such a claim, but the claim itself is, in fact, false. It is unwise to decide that just because the judges on the panel would not be deceived, it is therefore impossible that any reasonable consumer would be deceived. This is especially the case because the claims are scientific. I fear that the majority opinion sets up a slippery slope for future false advertising claims brought by consumers, especially as consumer products become ever more hi-tech and complex.

The dissent pointed out the disconnect between finding that "odor eliminating" and "reactivation" are nonactionable puffery and allowing that “works on 100% of your scent 100% of the time," renders the wearer "completely scent-free," and "create[s] an impervious shield to odor" might go beyond puffery. If a reasonable hunter is scientifically competent as to one, why not to the others? Also, the terms at issue don’t fit the circuit's definition of puffery, (1) exaggerated statements of bluster or boast upon which no reasonable consumer would rely and (2) vague or highly subjective claims of product superiority, including bald assertions of superiority.

Puffery is the opposite of a factual claim, which is “a statement that (1) admits of being adjudged true or false in a way that (2) admits of empirical verification.” The dissent considered, quite rightly, that “odor eliminating” met those prerequisites (and again “reactivation” has simply been ignored in the analysis). It would merely have remanded on the first issue.

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